Suppose the demand function is given by Q_x^d = 8P_x^0.5 P_y^0.25 M^0.12 H.Then good x is: A) a normal good. B) an inferior good. C) a complement for good y. D) perfectly inelastic.

Question

Quizplus · Accepted Answer

The demand function shows a positive relationship between the quantity demanded of good x and its own price (PS1) and a negative relationship between the quantity demanded of good x and the price of good y (PS1U1B1y). This indicates that good x is a regular good (not an inferior good). If the price of good x increases, the quantity demanded of it decreases while the quantity demanded of good y increases, implying that good x could be a complement for good y. However, this complement relationship cannot be confirmed without more information. The fact that the coefficient of price elasticity of demand (MS1U1P1) for good x is relatively low (0.12) suggests that the demand for good x is relatively inelastic, but it does not indicate that it is perfectly inelastic.

Suppose the Demand Function Is Given by Qxd = 8Px0

Suppose the Demand Function Is Given by Q_x^d = 8P_x⁰